Gold futures top $426 on dollar, terror

Copper climbs; key indexes end near four-month high

SAN FRANCISCO (MarketWatch) -- Gold futures jumped Monday, fueled by a pullback in the dollar and heightened concern about geopolitical anxieties after last week's bomb attacks in London.

Gold for August delivery closed at $426.30 an ounce, up $2.50 on the New York Mercantile Exchange, after earlier climbing as high as $427.40.

The contract had lost 1% last week, indicating that "gold is attempting to build a base," said Peter Grandich, editor of The Grandich Letter.

"A weaker U.S. dollar and a renewed terrorism premium is helping to stabilize prices," Grandich said of the action in gold.

Meanwhile, copper rallied to touch prices not seen since at least 1989, helping to hoist two key indexes for the metals sector to their highest levels in almost four months.

The CBOE Gold Index
GOX, -0.56%
tacked on 2.3% to close at 84.59 and the Amex Gold Bugs Index
HUI, +0.18%
ended at 205.01, up 2.6%. Both sector-trackers closed at their highest since the last week of March.

The Philadelphia Gold/Silver Index
XAU, +0.36%
closed at 94.09, up 2.1% -- that's its highest ending level since late June.

Among individual stocks, Harmony Gold
HMY, +2.72%
added 36 cents, or 4.2%, to end at $8.88 and Coeur d'Alene Mines
CDE, -1.39%
rose 21 cents, or 6%, to close at $3.73.

Placer Dome's shares closed up 41 cents, or 2.7%, to close at $15.80.

Copper bellwether Phelps Dodge Corp.
PD, +3.94%
gained by $1.88, or 1.9%, to end at $99.50.

Gold's rebound coincided "as the dollar has seen profit-taking and this theme seems set to continue as the market has largely gone back into dollar-watching mode within the $420 to $430 area," said James Moore, an analyst at TheBullionDesk.com.

At last check, the dollar failed to sustain last week's year-plus peaks, taken lower by a symbolic vote in favor of a European Union constitution and by some relief in oil prices. See Currencies.

"The week ahead is likely to see a certain degree of safe-haven positioning factored into the price of gold following Thursday's attack in London and terrorist hits in Iraq and Turkey over the weekend," Moore wrote in a note to clients.

Building back from a bottom?

Last week, gold prices "hit a fairly solid bottom" at $422.50, said Thomas Hartmann, an analyst at Altavest Worldwide Trading.

"With oversold conditions, a bit of profit taking" is lifting the market, he said, adding that traders will continue to watch the movements in the dollar.

Potential for a recovery up to $430 will "begin to appear" if the dollar "breaks down below 89 for a correction towards 87," he said.

"Until then, a lot of stale long positions will hold prices back and will be unwilling to pick up new positions until a major correction occurs," he said. "Falling crude prices will also weigh on upside potential," he added.

Elsewhere in metals, silver prices gained ground, with the September contract closing up 7.5 cents at $7.105 an ounce. September palladium closed up 15 cents at $185.75 an ounce, while July platinum ended at $870.80 an ounce, up $7.60.

Copper shines

Rounding out the metals action on Nymex, the benchmark futures contract for copper traded at its highest level in at least 16 years.

September copper climbed to an intraday high of $1.582 a pound before closing at $1.561 a pound, up 0.5 cent. The June copper contract touched a record of $1.70 on June 24.

"Copper is resilient in a continuum of one-time disruptions," said John H. Hill, an analyst at Citigroup/Smith Barney.

"Copper's continued strength in the face of heavily bearish consensus seems to reflect the triumph of fundamentals (principally ever-tightening inventories) over trading sentiment, with a healthy dose of short-covering, plus Chinese restocking creeping in to the market," he wrote in a report for clients.

"Strikes at Placer Dome's Zaldivar [mine] and Asarco are only the latest in a long litany," he said.

On Friday, Vancouver-based Placer Dome
PDG, -1.12%
said it has received preliminary approval with local authorities at its Zaldivar copper mine in Chile, where unionized workers began a strike on July 4.

The company said the plans have been accepted subject to a temporary restriction limiting production to 120 metric tons of copper per day, or about one-third of typical production, until further site training of contract workers is completed.

Tracking inventories, copper supplies were down 324 short tons at 14,738 short tons as of late Friday, according to Nymex. Silver stocks were up 1.6 million troy ounces at 104.8 million troy ounces and gold inventories stood at 5.66 million troy ounces, down 157,136 troy ounces from the previous session.

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